Working out CGT on flat DH used to live in

[lalalonglegs]

My husband has owned a flat for the past 10 years in an area that has become very fashionable. He lived there for the first year, it has been let for the past 9 years - he is just about to sell.

It has gone up in value by quite a big amount and we are trying to work out how much tax he will have to pay. It is all in his name and I understand the first period when he lived there is exempt and the last three years of ownership. Soooo, do we work out the value in 2003 when he moved out and 2009 (3 years before he sold) and pay CGT on that gain in value or do we look at total value, divide by 124 months (his period of ownership) and then discount 48 months that he would be exempt to work out the taxable gain?

Does that make any sense?

The latter. First you can reduce the gain by an indexation factor. Then you can probably double up the relief with Lettings Relief up to £40,000 - more information here; tables for indexation allowance here.

See an accountant to make sure you are claiming the maximum amount of relief available.

As MrAnchovy says you do the latter (unless you had market valuations done at the time and they give you a better result).
You then get Lettings Relief (very valuable).
And his annual tax free capital gains amount.

You won't however get indexation, as that is only for companies now.

Thank you so much for your answers. Funnily enough, we do have valuations for 2003 and 2010 (not 2009) which were done for mortgage purposes and for a freehold issue would be very beneficial in working out the gain because the 2010 one is hilariously low. Do you think we could use these?

MrAnchovy - on the link you gave me it says:
The amount of relief is the lowest of:
? the amount of Private Residence Relief already calculated, or
? £40,000, or
? the amount of any chargeable gain you make because of the letting
(calculated as a fraction of the gain - the fraction being the period of
letting/divided by the period of ownership).

Does that mean we can double up? It sounds as if we can't but am hoping that I am wrong...

BTW - we will definitely see an accountant but want to have a rough idea of amount of CGT now as we are looking to put the non-taxed sum towards another home.

you get the PPR relief, THEN you get the lettings relief as well - the wording you use is how the lettings relief is calculated.
So, yes effectively doubling up as you say - PPR and lettings relief are 2 separate reliefs and in this situation you are entitled to both.

Not sure on the valuation thing, I have never used it but someone on here linked to it once, I'll have a look and see if I can find it.

point re valuations was discussed here though the link made by another poster is no longer available.

Thank you so much ChasingSquirrels - that #40k of relief will make a huge difference to us. and

Oops that shows how long it is since I did a calculation for an individual making a capital gain on selling a buy to let property - I had completely forgotton about the indexation changes.

I don't think you can use interim valuations, I believe you have to "straight line" the gain and apportion accordingly. Taxationweb is broken at the moment and I don't subscribe to Simons so I would definitely refer to a specialist on that if the lettings relief isn't enough to eliminate the gain - I hope your accountant subscribes to a good technical backup service.

Thanks ChasingSquirrels for correcting me on this one!

lol - actually I went and triple checked myself as I often come along after you and rarely have anything helpful to add!

The interim valuation thing is interesting, I would have said no as well, prior to that thread I linked to - the article (which no longer seems to be available) linked to in that thread presented a pretty compelling case for it, although I have never seen it used in practice.
TBH given that you self assess, and if you think your interpretation of the law is correct that is how you would self assess, I would be tempted to use it if it was in the tax payers favour.
You could certainly give a good argument for it if it was ever challenged - and the chances of it being challenged in the first place must be pretty slim.

I would be very interested to see the reasoning for the valuations method (unless it refers to gifts or March 1982) because in the situation the OP describes using a valuation at the date of moving out seems to contravene s223 TCGA 1992 - the section actually explaining how only or main residence gain is calculated. it says (paraphrasing here) that where all of the gain does not qualify for the only or main residence relief the fraction of the gain that does is calculated as period during which the house was the main residence + the last 36 months, divided by the total ownership period.

So this is not HMRC interpretation, this is how the law actually stands. therefore, my reading of the legislation says that you apportion the total gain based on the formula (actually lived in + 36m / total ownership) and do not use interim valuations. To do so would be against the law and, disagreeing with ChasingSquirrels here, you would have no argument if HMRC dispute it.

Thanks again for all your advice. I will be handing it to our accountant. Is it worth putting the flat in both our names so I get the CGT allowance or will that wipe out the fact that he qualifies for PPR?

I can't find the article itself, which is annoying, and I was very sceptical until I read it.
I would have to find it again and convince myself of its legality, and I wouldn't do it if I thought it didn't comply with the law.
Will be looking on Simons in work tomorrow!

Although the chances of ever using it are fairly slim as people just don't bother with valuations.

Take detailed advice before deciding whether to transfer a share of the flat to your name pre sale - you would gain the use of your annual exemption but you might lose some OMR (Only or Main Residence relief) and Lettings relief as you would not qualify for these.

Ah, taxationweb back up now. The extract from Simon's is here. I am not sure I agree with what is written - S224(2) is intended to apply where the value of the residence, or of the part of the building including the residence used as the PPR, changes due to extension, reconstruction etc. or due to change of use of part of the building thus making a simple time apportionment impossible. Given that S224(2) leaves it to HMRC to decide what is just and reasonable they would have to be uncharacteristically generous to admit a calculation that was more favourable than a simple time apportionment where the latter was possible.